Random expressions of a Wannabe

BAN THE “FDI” – WHOLESALE I Say!!!

Hearing the cacophony of noises in India’s ‘temple of democracy’ last week on FDI (Foreign Direct Investment) in multibrand retail, one couldn’t help conclude that FDI is back again to haunt us. I am referring to the “Famous Desi Insecurity” among the ‘pujaris’ of the parliament temple. In the annals of Independent India, this FDI has a long history and raises its head with alarming frequency!

1988: The topic for a group discussion in a B-School where I went for admission was “Is computerization a boon or bane for modern India?” Today it looks like such an obvious topic to have any discussion about or have any debate at all – with computing being omnipresent on the ground, on the move and even in the Cloud! However, those days the case for computers had not been wrested. Trade Unions in many establishments across the country were up in arms against computerization which was supposed to leave millions jobless. The “INTEL” inside a PC will leak our country’s secrets and is a threat to our sovereignty was even one of the naïve apprehensions, I remember. 3 decades hence, as I create this piece in my laptop, if I attempt to explain what actually the consequence of computerization is, I will be only accused of stating the obvious.

1991: The year in which liberalization and reforms were undertaken by the Government when the country was in the brink of an economic collapse. The Naysayers that time accused the Govt. of

walking into the trap laid by the IMF,

attempting to kill the domestic industry by de-licensing, by cutting import duty, by bringing goods under an “Open General license regime”,…,,…

Nothing of that sort happened and on the contrary, India graduated from a much contended ‘Hindu rate of Growth’ of 3 % on an average in the previous 2 decades to average ‘Indian rate of Growth of 7.5% in the next 2 decades. We became part of the famous “BRIC” story that was being built globally.

2001 : All around the country there was a symphony of voices about the threat of domestic manufacturing industry getting wiped out in several sectors including many small scale industries like Locks, Toys,. The government was about to remove the Quantitative Restrictions for imports across many sectors as per WTO. The Quantitative Restrictions were hitherto acting as a protection to the flurry of imported goods except in “Burma Bazaars”. The local manufacturing of FMCG (Fast moving consumer goods) will face a slow and steady death as the Indian consumer will be bombarded with imported “Charlies” and “Camays” – was the war cry. 10 years hence, has the local mfg. industry been wiped out? Has the imported Camay overtaken the local Cinthol? The answer is Yes and No. In small-scale sectors like lock manufacturing,.. due to no investments in technology, the units have been facing a serious lock out. (Eg: Lock mfrs. in Aligarh). The Chinese locks today protect most households. However in sectors where mfrs. have looked at ‘opening up’ as an opportunity rather than a threat, have upgraded their works, have got into strategic collaborations, got in investments and have eventually flourished. Camay is produced in India now by a Contract mfr. for P&G.

VAT introduction in India in 2005, Opening up of the Insurance sector to FDI in 2006, the Indo-US civil nuclear treaty in 2008 and now the opposition to allow FDI in multi brand retail.

I can go on and on on the list of issues where our politicians pontificated doom and created kerfuffle.

In all these, the common thread is the Insecurity among the politicians about our own country and the lack of self-confidence or the “Can-do” spirit which today’s youth in the street display day in and day out. In spite of the fact that in all the above instances the Indian enterprise has repeatedly demonstrated that “India today” is not the one to cowed down by outside influences but is one that looks at all possibilities to collaborate and prosper.

I for one am delighted to see the opposition to FDI in retail and finally government of the day pushing it through by Hook or Crook I mean Mayawati or Mulayam!!! Going by past history and instances whenever our politicians oppose something vociferously and foretell that doomsday is here – we know what will happen. So I believe, thanks to FDI in multibrand retail,

Kiranas are not going to get wiped out so soon

Farmers are not going to be exploited

Millions of Indians are not going to lose jobs

Or for that matter

“Will not make our children sales boys and girls”

as being apprehended.

For, advent of computers in the 80s in India didn’t leave millions of Indians jobless but created a fledgling US$100bn IT Industry that creates an estimated 230,000 jobs or round about annually thereby employing 11 million people directly and indirectly. So like computerization, retail could be a game changer. However whether this FDI policy of the Government will be a Game changer? That will keep it for my next post.

So let’s not stop the FDI (Foreign Direct Investment) in retail but ban the FDI (Famous Desi Insecurity) – wholesale which seems to have engulfed many of our politicians!!!

Postscript: The joke used to be that in the 70’s if some Govt. babu was seen wearing a denim, he was suspected to be a CIA implant and R&AW was let after him!!!

I fully agree with the contents posted here. FDI in multi-brand retail will help Indian Industry. Recently, I was in Istanbul and I visited a store similar to Walmart. All the leather jackets and some clothes were made in India. if Indians can sell to big mega store in Turkey , why not in India?
I often see lot of Kiwi(NZ) apples sold in Indian markets and I wonder how could have this happened? Has this killed Indian apple Industry ? No!
The future holds for India .. with 1.2 Billion population and growing more, India need not be afraid of anyone!

FDI issue is unlike the other issues you have mentioned… In India these sectors continuous to remain highly fragmented and the majority is dominated by the unorganized segment ie the family run stores. The history in developed countries in America and Europe shows that same retailers were affected badly by the adventure of these kinds of Super markets and mega markets…. South East Asian countries have formulated stringent norms and rules in promoting these types of investment. Unlike china, India is not a big manufacturing company… The foreign companies investing in this venture will relay upon other sources for their procurement outside the country. If this triggers mass production facilities in India, that would be a positive sign. But for the consumers this retail boom will be blessing. They will get lot of varieties at a lower price and an efficient supply chain system. For the youth, there will be considerable employment openings at different levels. Let’s hope for the best..

Most of the middlemen and small time retailers are unskilled people and earn their living by their connections! I do not see anything wrong with their existence.

But the current state is not without flaws. I do read about middlemen mafia that let produce rot as they control the market. But am not sure how FDI would address such problem. Large corporations are no angels, and are known to seek help of mafia for various reasons.

I’m afraid FDI would kill simple middlemen first and that won’t be good.

Hi TRS, Your views are most welcome. Thanks. I sincerely feel that just as you said the annachis are quite enterprising enough to take on the biggies ( whether domestic or foreign). Hence my point that the insecurity about FDI is unfounded. As long as we don’t take any kind of protection for granted and evolve ourselves, I’m sure we will weather any storm. Keep commenting, thanks. In the mean time I will read your blog post.

Hi anna..very well written.100% agree with your views.If this is utilized in a positiva way there will be growth in the agri sector as middle men will get eliminated and thereby farmers will get better price for their produce. Also better farming equipments might be used. Only concern is the use of pesticides for producing mass food grains and vegetables.This should be discouraged.The middle men can be better employed in a farm where they can do a more useful job. Also FDI can create job opprtunities for them. All in all the way to go.

If we travel to the villages we will witness the real problems faced by our farmers. Most of them dont have water and money too. If they had the ability to invest money in even digging borewells they could cultivate something out of their land. Middlemen make a lot of money currently and it is very tough to know what % margins they have as it is completely unorganised and run by local politicians and goons.

With FDI, we can hope that the corporates will also look into the welfare of the farmer like providing technology, financial assistance or what ever is needed. This way increasing the earnings for every farmer. With better cold storage and logistics am sure that we will surely save millions of Tons of food material that is currently getting rotten in our country and then let into the ration supply to our poor citizens. Currently, farmers are selling their lands as they get more money by this than doing cultivation. At least they dont have to sweat out from morning 6 to evening 6.

As far as politicians stay away from this surely FDI will over a period of time be beneficial for our nation.

Dear Mr.Anand,
I have been an ardent follower of your blog ever since I joined ERHSS group. I thoroughly enjoyed reading the above articles which speaks the ground reality that had happened and will happen.

By the way I completed X std. in 1978 and am the first set of +2 stream in ERHSS , chose commerce group. Completed my B.Com. from National College, Trichy between 1980-83 acadamic years.

Having served with a Govt. of India owned PSU general insurance company for over 2.5 decades , presently I am working in the same field in Saudi Arabia.

Constructing an independent house in Mutharasanallur in order to settle down in Trichy during retired life time.

Dear Sir, Thanks for following my blog and for the encouragement. I suppose that you would have been a classmate of my elder brother Ashok Kumar who is also of the same batch ( 1st HSC batch in ERHSS ) !!!

Thanks for your lightning response. If I can see your brother’s photo only I can remember him. But sure those days there were I group English medium , II group Tamil Medium , III group commerce and IV group vocational , all put together some where around 200 students. Anyhow convey my best regards to your brother also. As I told you I was in West Chinthamani , the river bed of cauvery during those days.

hi sir,
though i agree to your view. I somehow feel that the issue can be debated in any way that we want.
I recently had a conversation with my friend who has a family gold business. He has few shops in the localities of Bangalore.
Of late his business has been suffering as the giants started to mushroom- Tanishq from Tatas, Reliance Jewels etc.
He feels that the small family run businesses will suffer as they cannot compete with these. But the only consoling factor here is they are indian companies and he feels it is ok to compete internally.
But in the FDI, what if companies from Gulf start investing heavily here with shops everywhere giving better prices. He had some other technical terms like ‘they use niclel in gold , it shines more’ etc etc which i did not understand and i am not sure of the metal name also.
‘Reliance Jewels or tanishq can compete with them but how can we’? is his question.
How do i answer this?
The consumer will benefit with varied choices and better price is what i told him.
‘yes, Definitely. I do agree. But over a period of time, once they capture the market the consumer will be having no choice. He will have many shops but all shops sourced from the same source.’
FDI is a long term plan to control India. Consumers will enjoy for the moment but in the long run sure to suffer.
This has been very convincing for me.
How do you answer this sir?
Awaiting your reply.
Thanks.
Raghu Vamshee

Dear Raghu,
First of all thanks for your feedback and detailed comments. Whether it is a small local store or a foreign super market, if they don’t provide true value to the customer like us, they will find it difficult to survive. I’ve seen that many local stores, have improved in terms of offerings, service,… when Indian corporates entered the super market fray. So we must not underestimate their skill to improve when forced. And that will be a good thing for consumers. In the bargain if they will have to work harder or be more competitive, so be it.

Appreciating the time and energy you put into your
blog and in depth information you provide.
It’s great to come across a blog every once in a while that isn’t the same unwanted rehashed material.
Wonderful read! I’ve bookmarked your site and I’m adding your RSS feeds to my Google
account.

Great note Anand. The challenge with most nations is the political bureaucracy. Not sure how many retailers will get attracted if there is always a sword of retraction by the govt hanging on their necks.

The job creation potential in organized retail is immense. Dubai being the best example. Lot of international retailers are keeping an eye on India with a huge middle class and now a well paid middle class. Would be interesting to see how many actually jump in.

Yes mom and pop shops may disappear unless they develop a niche but many will get employed too and overal there will be better efficiency. Consumers will have more access to quality products. Yes retailer will make loads of money( that’s what they are supposed to) but so will many who get employed and not to mention the taxes that they will collect.

Hey Rajesh, Thanks for the feedback. I agree with you. The present FDI policy may not seem exciting for foreign retailers to put in money in India still. But I do feel that this is a starting point and soon the policy will undergo “quiet” changes & thats when India will see the actual $ inflows.

Thanks for the contributing. QUITE an interesting historical perspectuve. Like most things in life balance is essential. Unless you olan an isolation strstegy FDI must be consideref while also maintaining a healthy fomestic support agenda.

I understand and the issues stems from, as you put it insecurity. However, more deeply rooted to this end is that urgent need for public policy relative to foreign direct invest. I like to think of this in terms of being a valve that can either be opened up or closed depending on the tenor of local domestic enterprise. One cannot expect to sell/operate globally yet have a closed door policy to reasonable foreign investment, especially if the enterprise brings value to the domestic community. Within Asia we have really two distinct camps, ones that are vehemently opposed to foreign enterprise (except for selling into them) and create abnormally difficult hurdles for a foreign enterprise to make market entry. In this scenario the country suffers and usually because domestic output/production is not capable of obtaining like commodities. On the other hand there are those countries who have an open door which encourages foreign enterprise and in doing so will even go so far as to offer appropriate incentives. These countries haven’t turned their back on their domestic brothers and in fact they will often play off of the foreign venture, and will also get appropriate levels of support to take their services beyond the borders that they normally would be unable to reach. Hope this adds a bit more through to your posting.